In a way, it’s easy to be a leftie just now. £81bn of spending cuts and only £29bn of tax rises fill most social democrats’ hearts with dread – and as the scale of what’s in store becomes clearer, the public are likely to be pretty horrified too. So unless you’re a left-wing Lib Dem, the line to take is less complicated than at any time since … well, since the last time the Tories were in power.
I think, though, that this could present a very real trap. It’s refreshing for the left to be able to rail against the enemy’s Budgets; even more refreshing when the public is quite possibly on its side. But Labour’s problem now isn’t just (or even mainly) about popularity per se; it’s about credibility. And that’s exactly where just railing won’t get them very far.
This isn’t just a case of it being unclear what share of the deficit Labour should tackle through tax rises (40%? 50%? 60%?); that’s a cause for concern, but you could argue the party needs some time to redefine itself and that Ed Miliband hasn’t even been leader for four months yet. More worryingly, though, I don’t see any real evidence of Labour engaging with what any of these options actually mean. I understand the difficulties: a party which still remembers what tax plans did to their chances in 1992 is obviously going to have its worries about talking about tax rises too much. But like it or not, Labour’s economic and fiscal record did a great deal to lose them the last election. It may very well be (mostly) unfair, but it’s also a fact of political life with which Labour needs to come to terms.
That means that, even though Labour thinks the deficit should be reduced at a more measured pace, it needs to show it has an idea how it might go about doing so eventually. Bankers’ bonuses, tax avoidance and going for growth by postponing cuts won’t cut it as an economic policy for the next two parliaments. Of course Miliband and Johnson don’t need a detailed Shadow Budget – opposition is not government and the Tories never presented one when they were out of power. But some sense of where the pain would be felt by the public themselves may be important – because it would help to provide some credibility for the Opposition. It’s worth bearing in mind that, if the UK wanted to cut the deficit at the current speed but do half of that through taxes, we would need to raise an extra £26 billion per year by 2014-15.* When the fiscal challenge is that big, ‘no pain (for almost all of you)’ is a deeply implausible message – even if it’s only implied. ‘Pain fairly shared’ sounds less appealing, but has a better chance of being believed.
The need to have alternatives in mind will get more pressing, because the arguments over the speed of deficit reduction will be overtaken by events. I think the Coalition were very wrong to pin their colours to the mast in the way that they have: but they’ve now made it critical to their political, and quite possibly market, credibility. That means that, unless the economy really does go into reverse as a result (in which case all bets are off) or the Government falls (which would have its own problems in terms of market panic and thus the required speed of the tightening), we’re stuck with this pace. By 2013, if the economy hasn’t gone into a double-dip recession (even if growth is sluggish), ‘don’t do this so fast’ may very well seem like yesterday’s news.
So there needs to be a better sense of what Labour would do, not just when it would(n’t) do it. But that also needs to be informed by a clear sense of why Labour wants to do it in a given way. When Alan Johnson talked about shifting the balance of tightening towards taxes enough to roughly halve the size of cuts to capital expenditure, we had a hint. The consistent focus on ‘who pays’ is another. These need to be more explicit. If Labour’s attack is consistently based on ‘what will a particular cut do to our ability to grow the economy?’ and ‘will this cut mean that the poorest are hit hardest?’, then you have the beginnings of a consistent approach to the deficit.
Of course, there is an obvious next question: what sort of tax rises could you go for to cut the deficit, if you’re going to argue that taxes should take more of the load? Again, Labour doesn’t have to have a fully worked-out Shadow Budget; but it needs to understand the magnitude of the shift it might end up arguing for. More on that in another post …
* According to the Emergency Budget, £83 billion of spending cuts and £29 billion of tax rises. The Spending Review set more money aside for capital investment, reducing the scale of cuts to £81 billion. A 50/50 split would amount to £55 billion in net tax rises and £55 billion in cuts – an extra £26 billion of taxes on top of the planned £29 billion.